How to Become an LLC Business

A limited liability company (LLC) is a nonincorporated business entity. It combines features of partnerships and corporations into a very popular and flexible business structure. Specifically, an LLC allows members (owners) to pass business income to their personal tax returns while providing the protection from individual liability traditionally reserved for corporations. The creators of an LLC business also are largely free to contract with each other in almost limitless ways when designing the company's operational plan.

Difficulty: Moderate

Instructions

1. Search name availability to make sure the business name you've selected has not already been used. Every state maintains a database of fictitious entity names certified in the state.

2. Draft an operating agreement, which is the LLC's version of by-laws--a contract among the members of the LLC detailing their respective roles and percent ownership. With specific language or a separate buy-sell agreement document, the operating agreement also defines how new members can join the LLC and how existing members can leave.

3. File the LLC creation document with the state. Some states refer to this as a "certificate of formation," while others use the term "articles of organization"--both of which distinguish LLCs from corporations. Essentially, the creation document is a statement of the company's name, address, areas of business, and registered agent.

4. Submit filing fees. The cost of filing a new LLC with a state government is typically between $100 and $800, but this can vary. Check with your state prior to filing (see "Resources").

5. Obtain the business and occupational licenses and permits that your state may require before your LLC is allowed to operate. Contact the state government agencies that oversee the segment of the state economy that pertains to your business.

Tips & Warnings

• Most states require an LLC to include the words "limited liability company" or the acronym "LLC" in its name. Some states provide a streamlined process for converting an existing corporation into an LLC. In any event, you can form a new LLC and transfer the corporation's assets to the new entity.
• A minority of states require members to publish a notice of intent to form an LLC in local periodicals concurrent with their application.

References

• LLC Basics

Resources

• Forming an LLC in Your State
• How do I become an LLC?
• How to Form an LLC From a Corporation

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